Disability, injury insurance schemes need scrutiny

Andrew Baker

With the National Disability Insurance Scheme receiving much public attention, it is easy to forget the Productivity Commission's other recommendation to establish a National Injury Insurance Scheme.

The NIIS is the forgotten little brother of the bigger, brighter and more popular NDIS, but that is no reason to ignore it. Australian governments have a well-established track record of using dividends and special dividends, particularly from insurance companies they own, to fill in financial black holes and prop up their bottom lines. With talks of taxes and levies to help fund the NDIS, it is possible that the NIIS could be used as a Trojan horse to increase state government revenues.

The NIIS will provide no-fault insurance coverage for Australians who acquire a disability from a catastrophic injury and require lifetime care and support. For example, the NIIS would support people who suffer a spinal cord injury in a car accident and need a wheelchair for the rest of their life, or who acquire a brain injury after being king hit during a night out on the town. All at a cost of about $1.8 billion every year.

The $22 billion a year NDIS, on the other hand, would cover people born with a disability, such as autism, cerebral palsy or Down's syndrome, or acquire a disability such as macular degeneration or hearing loss.

Unlike the NDIS, which would be a national scheme funded through core government revenue, the NIIS, as proposed by the commission, would be a federal scheme funded through insurance premiums, surcharges, levies and increased municipal rates - and would include experience and risk-rating to help prevent injury. The NIIS is more like a proper insurance scheme compared to the NDIS, which is essentially an entitlement scheme.

The NIIS comes with its risks to taxpayers - not in the form of compulsory third-party premiums and increased surcharges and levies but from the predilection of Australian governments to award themselves dividends from the insurance providers they own. (The fees and surcharges are not a bad thing in themselves - they will send appropriate price signals to consumers and help deter high-risk behaviour.)

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For example, in the 2012-13 budget, the Commonwealth stripped $200 million from the Export Finance and Insurance Corporation through a special dividend; the Australian Reinsurance Pool Corporation paid $100 million as a one-off dividend payment, and will pay $75 million every year as well for the next four years in dividends. Twenty-five per cent of Wayne Swan's projected $1.5 billion surplus, $375 million, comes from dividends from government-owned insurance corporations.

Another Commonwealth-owned insurer, Medibank Private, propped up the finances of the current Labor government through a $300 million special dividend in 2010-11.

State governments are just as bad. Last year, the Victorian government took $471.5 million from its workplace compensation scheme, WorkSafe. Employers paid premiums to WorkSafe to cover the cost of compensation if their employees suffered an injury while at work - and funded accident prevention campaigns. The Victorian government took funds from WorkSafe and included them in the government's general revenue, effectively turning these premiums into a tax on employers.

The same can be said for Victorian motorists. Victorian governments have collected more than $1 billion in dividends from the Transport Accident Commission, including $302 million in 2005-06, $232 million in 2004-05, and $295 million in 2003-04. The Motor Accidents Insurance Board provides a similar service to this commission and is a cash cow for the Tasmanian government, having delivered nearly $170 million in dividends from 2005-06 to 2010-11.

Other state governments also have a penchant for siphoning hundreds of millions in dividends from their state-owned utilities. The NSW government took more than $250 million from its water utilities in 2011-12, and will take a similar amount in 2012-13. Hydro Tasmania paid $49 million in dividends to the Tasmanian government in 2011-12.

How the states choose to implement the NIIS will be up to them. Victoria, NSW and Tasmania already have no-fault insurance schemes for motor vehicle injuries (a major contributor to catastrophic injuries) and will soon provide complete coverage for catastrophic injuries. But Queensland, Western Australia, South Australia and the ACT do not and will have to put in substantial work to establish their own comprehensive no-fault catastrophic injury insurance schemes.

Although the NDIS and the NIIS are well-intentioned and well-meaning government programs, they should not be allowed to pass without serious scrutiny.

With so much attention focused on the NDIS and the prospect of a Medicare-type levy to pay for it, taxpayers should be vigilant of the possibility that the other new disability scheme, the NIIS, could be used by the states to tax their citizens even more.

Andrew Baker is a policy analyst at the Centre for Independent Studies.